RBI updates FEMA regulation to boost cross-border rupee transactions

To promote the increased use of the Indian Rupee (INR) in trade transactions, the Reserve Bank of India (RBI) introduced the Special Rupee Vostro Account (SRVA) arrangement in July 2022. Since then, several foreign banks have opened SRVAs with Indian banks. Additionally, the RBI has signed Memorandums of Understanding (MoUs) with the central banks of the United Arab Emirates, Indonesia, and the Maldives to encourage cross-border transactions in local currencies. In December 2023, the Foreign Exchange Management (Manner of Receipt and Payment) Regulations were updated to allow cross-border transactions in all foreign currencies (including the local currencies of trading partners) as well as INR.

To further promote cross-border transactions in INR and local/national currencies, the RBI, in consultation with the Central Government, has reviewed and updated the existing FEMA regulations. As a result, the following changes have been implemented:

1. Overseas branches of Authorized Dealer banks will now be able to open INR accounts for non-resident individuals to settle all permissible current and capital account transactions with residents in India.
2. Non-residents will be allowed to settle legitimate transactions with other non-residents using balances in their repatriable INR accounts, such as Special Non-resident Rupee Accounts (SNRAs) and SRVAs.
3. Non-residents will be able to use their balances in repatriable INR accounts for foreign investments, including Foreign Direct Investment (FDI), in non-debt instruments.
4. Indian exporters will be able to open accounts in any foreign currency abroad for settling trade transactions, including receiving export proceeds and using those proceeds to pay for imports.

The revised regulations and directions to implement these changes have now been issued.

commenting on new FEMA regulation by RBI, Akash Chauhan, Director Regulatory Affairs, IndusLaw:

“These amendments are steady steps to make Indian Rupee more popular globally and equips our exporters with greater flexibility in concluding their transactions overseas. Moreover, these amendments reflect the efforts being taken to make the SNRR account more attractive for overseas entities, thereby increasing investor confidence”.